Is your Industrial Tech Startup Ready to Scale?

A guide for industrial tech startup founders on when & how to scale

Photo by Isaac Smith on Unsplash

Founding a startup and building a product is not the same as scaling it. They both require different skills & capabilities. Many startups that had a great product have failed, only a few successfully scale & build a successful venture. In this blog, I’ve laid out a set of attributes & indicators that you, an industrial tech startup founder, should know before trying to scale your startup.

Here the assumption is that your startup already has an MVP and a strong value proposition for an industrial tech product, and is generating considerable revenue from multiple industrial customers.

1. Product Market Fit

The most important precondition for a startup to scale is to achieve a Product Market Fit (PMF). PMF occurs when your product addresses a strong need in the market and more & more users would want to use the product. In other words, there will be a strong pull for your product in the market. Below are some indications for PMF:

1. The product deployment timeline for most of your target industrial users will be minimal—only a couple of weeks or even a couple of days (varies depending on the nature of your product).
2. The value proposition of your product will be so clear and straightforward that customers won’t find any difficulty understanding your products’ benefits & ROI. Quick buying decisions will be made.
3. Your distribution partners will have no difficulties understanding your product & its offerings, and will find it easy to sell. Also, they will only need minimal training period before they can start selling your product.
4. There will be minimal or no customisations before deploying the product into your users’ plant/facility. Also, the users themselves will be able to configure the product to fit their need, like configuring their smart phone settings. In other words, your product is standardised & will be intuitive to use.
5. Pilot projects would get quickly converted into large scale deployments, and there would be repeated revenue from your existing customers. Also, adoption among new customers would skyrocket.

All these point out to one thing—lower adoption barriers. Adoption Barriers are potential bottlenecks that can stop users from buying the product and using it. When a product has reached PMF its adoption barriers will be so low that users beyond early adopters will start using it. And this is where the majority of the users can be found (more than 70%), irrespective of the industry. Read more on adoption barriers here.

Lower the adoption barriers, greater the adoption

2. Partnerships

It is impossible for you and your team to reach all your potential customers. Also, you cannot set up huge production facilities to manufacture your product (if you are a hardware startup). If you have to scale your startup non-linearly, you need partners—manufacturers, distributors, and system integrators. Few reasons why partnerships are critical to scale:

1. The right distribution partners will already have an established network of your potential customers and the necessary infrastructure for distribution. They can sell your product to this network at a significantly lower cost. On the other hand, without distribution partners, you will have to generate leads from scratch, prospect them, and close deals—which is time-consuming & expensive.
2. Distribution Partners might know more about your potential customers than you do, so they know which door to knock and whom to talk to. You can also leverage their domain experience in improving your product, strengthening GTM, etc.
3. If you are going global, probably the only way to reach customers in other countries is through local channel partners. This is for a simple reason that people would trust local partners more than you.
4. Partnerships with system integrators, like SAP, AWS, Azure, etc., is a critical factor in scaling for two reasons. Firstly, most of your potential industrial users would already be using these platforms extensively, so they can provide an entry to these users. Secondly, these platforms are already well integrated into their plant operations and will be sitting on a lot of data, if your product can integrate into these platforms, it will mutually benefit both you and the system integrators.

Partnerships is one of the biggest leverage you can have while trying to scale your startup non-linearly.

Leverage your partners’ infrastructure & resources to scale nonlinearly at a significantly lower cost

3. Customer Acquisition Cost and Customer Lifetime Value

Acquiring a new industrial customer is expensive, i.e. Customer Acquisition Cost (CAC) is high. Unlike B2C markets, industrial users buy products only after multiple discussion, assessing the product in detail, couple of demos & PoCs, etc. This process is resources intensive and takes time, thus the high CAC. This can become a huddle while scaling the startup.

To overcome this huddle and achieve non-linear scaling, your Customer Lifetime Value (CLV) should be disproportionately higher compared to CAC. For this to happen, there are certain strategies you can adopt:

1. Your product should keep delivering value continuously to the user, not just once or occasionally. The greater & more frequent the value it can deliver, the more will your customers be willing to pay.
2. The product should address multiple use-cases for an industrial user, not just a single narrow use-case. Hence opening up possibilities for cross-selling and up-selling product(s) in future to the same customer.
3. The business model should enable you to generate revenue continuously as the product keeps delivering value, like SaaS business model for example.

ExactSpace, a startup that provides industrial analytics solutions, has built predictive maintenance solution for 50+ thermal assets like boilers, heat exchangers, motors, pumps, etc. Most of these assets are found in almost any plant, irrespective of the industry, thus making cross-selling and up-selling possible. Also, industrial users need predictive maintenance solutions continuously, it is not a one time need.

Great Value + More Use-Cases + Good Business Model = High Customer Lifetime Value

For this to happen it is not sufficient if you only have a product, you need a platform.

4. Build Platforms, not Products

Platforms are more scalable than products. A platform is an ecosystem of multiple products and services that works in sync providing unique & significant value to the users.

What makes platforms more scalable than products:

1. Platforms provides a complete solution, i.e. it adds significant value to your buyer’s value chain, whereas a single product might only add limited value.
2. Platforms, if well developed, integrates well with your user’s business processes & IT infrastructure like SAP, AWS, and other platforms. This would make the platform so intertwined with your user’s processes that over time it would be difficult for them run their business operations without your platform.
3. Platforms might also enable others to build products or services on top of it, making the platform even more valuable. For instance, if your platform that digitises and harmonizes all the data generated in a factory floor will serve as a platform for building a predictive maintenance suite, an AR/VR based training solution, an energy monitoring & optimisation solution, etc., on top of it.

Skylark Drones, an industrial tech startup, has successfully built an aerial intelligence platform, which helps improve worksite productivity and asset performance. It addresses multiple use-cases across multiple industries like mining, construction, solar, infrastructure, agriculture, etc. It also helps individual drone pilots seamlessly plan and execute drone missions.

On the other hand, had the startup developed a simple product, it would have addressed only a handful of use-cases, the CLV would have been relatively low and the product would have been less attractive to users.

Platforms adds significant value to your buyer’s value chain, making it an irresistible & integral part of their business operations

5. Sustainable Competitive Advantage

Your product alone can never give your startup an enduring competitive advantage. No matter how great the product is, owing to the ever changing technological landscape, there will always be companies & startups that can build better technologies with superior value proposition. Of course your technology is one of the most important factor contributing to competitive advantage, however, it alone is not sufficient to successfully scale & sustain your industrial tech venture.

Sustainable or enduring competitive advantage comes from multiple aspects of a startup—product, technology, business model, team, GTM strategy, partnerships, network effect, the product ecosystem (platform), etc. And not just that, but also how all these aspects work in sync and synergises to deliver unique value to customers.

Let me illustrate this with Apple as an example. Apple’s hardware is built for the software and the software is built for the hardware—they work perfectly with each other. And all of Apple’s devices (iPhone, iPad, Mac, etc.) integrates seamlessly with each other—a platform giving customers a superior user experience.

Further, the app store provides thousands of apps, enabling users to configure their devices to their own needs. So all users across industries, from K12 to NASA scientists, use the same hardware while the apps enable them to customise the device to suit their applications. This is made possible through the developer ecosystem (i.e. individual developers outside Apple). Apple has unique developer programs, incentive models, recognition systems, etc., to sustain and develop their developer ecosystem. Also, Apple has developed their own simple & intuitive programming language called ‘Swift’ for this purpose.

On top of this, Apple has developed strong global partnerships for distribution and sales. Their partnership programs are so standardised & structured that it’s easy for Apple to onboard, train, and sustain partners.

The most important aspect is that how all these aspects works in unison—giving rise to Apple’s sustainable competitive advantage.

You achieve sustainable competitive advantage when different aspects of your startup like technology, end products, business model, partnerships, etc. works in unison and gives rise to a unique value to your customers.

These are insights from the Forge Venture Rubric—a tool that helps startup founders to build & scale successful industrial tech ventures, developed by Vish Sahasranamam, co-founder & CEO of Forge. Read more about the Forge Venture Rubric here. At Forge, we help industrial tech startup build products, raise funds, provide them with market access, and scale successfully. Know more about Forge here — www.forgeforward.in.